Workers | Output (Bushels) | Marginal Product of labor (MPL) | Value of marginal product of labor (VMPL) |
0 | 0 | ---- | ------ |
1 | 400 | 400 | 1600 |
2 | 1600 | 1200 | 4800 |
3 | 2600 | 1000 | 4000 |
4 | 3400 | 800 | 3200 |
5 | 4000 | 600 | 2400 |
6 | 4400 | 400 | 1600 |
7 | 4600 | 200 | 800 |
MPL = change in Output / change in workers
VMPL = MPL * Price of output.
A firm will hire the workers till VMPL is higher than the wage rate or VMPL = Wage rate.
We can see that till 4 units of worker, VMPL is higher than wage rate of $3000.
It means firm should hire 4 workers.
Alternative method
Workers | Output (Bushels) | TR | TC | Profit |
0 | 0 | 0 | 0 | 0 |
1 | 400 | 1600 | 3000 | -1400 |
2 | 1600 | 6400 | 6000 | 400 |
3 | 2600 | 10400 | 9000 | 1400 |
4 | 3400 | 13600 | 12000 | 1600 |
5 | 4000 | 16000 | 15000 | 1000 |
6 | 4400 | 17600 | 18000 | -400 |
7 | 4600 | 18400 | 21000 | -2600 |
TR = Price * output
TC = wage * number of workers.
Profit = TR - TC
we can see that at 4 units of worker the profit is maximum.
hence farm should hire 4 workers.
Answer: 4 workers
Labor demand Homework. Unanswered Consider the following data taken from a Florida orange grove (farm) where...
Labor Demand Homework . Unanswered Consider the following data taken from a Florida orange grove (farm) where the price oranges is $4.00 per bushel and the price per worker is $3000 (per month). How much the firm willing to pay for the 3rd worker? Workers Output (bushels) 400 1600 2600 3400 4000 4400 4600 Numeric Answer: